•Forward guidance gets fuzzier by the day. Mark Carney says the Bank wants traders to watch the data and react accordingly. That sounds terribly like what they used to do when Mervyn King was running Threadneedle Street (see Larry Elliott for more)

And the key data to watch will relate to productivity, and real wages (ie, whether earnings outpace inflation).

"As the economy progresses, the time to normalise interest rates is edging closer, it's coming closer. But what is most relevant is that those adjustments will be to a level of interest rates, through a gradual process that is likely to be materially lower than historic averages."

"Particularly with respect to the entrepreneurs and business people ... what's most relevant to those individuals, as for households, is not the timing of the first interest rate move but the expected path of interest rates over the medium term."

•Unwinding the Bank of England's quantitative easing programme is going to take a long time, and may never be completed.

•MPs are starting to have fun at Mark Carney's expense. Andrew Tyrie's scepticism over forward guidance is well known, but it was Pat McFadden MP who sparked chortles in the Wilson Room, dubbing the Bank an "unreliable boyfriend".

McFadden said:

"We've had a lot of different signals...I mean it strikes me that the Bank's sort of behaving like an unreliable boyfriend.

"One day hot, one day cold, and the people on the other side of the message are left not really knowing where they stand."

A far cry from Mark Carney's billing as "the outstanding central banker of his generation" when he was appointed.

That's all for today. Thanks. GW.

3.28pm BST

Our economics editor Larry Elliott says the Treasury committee are right to have their doubts about the Bank of England.

He writes:

As the first anniversary of Carney's arrival at the Bank nears, his main policy initiative – forward guidance – lies dead in the water. His testimony before MPs may have been intended to convey the message that nothing has really changed since the publication of the May inflation report, but in truth he has turned the clock back to the days when the MPC's approach was to assume that the future was unknowable and that the interest-rate decision had to be judged afresh each month.

So what then is the difference between monetary policy under Mervyn King and monetary policy under Mark Carney? Apart from the bigger salary and the Canadian accent, not a great deal, it would appear. In the sporting metaphors beloved by both men, they take each game as it comes.

America's economy does appear to be putting last winter's disruption, which forced its economy into contraction, behind it.

Updated at 3.09pm BST

2.31pm BST

The ever-magisterial Andrew Tyrie, who chairs the Treasury committee, has now issued a response to today's hearing appearance.

And he sounds less than impressed with Mark Carney -- suggesting that the Bank needs to be clearer about when the governor is flying solo, and when he's representing the monetary policy committee:

Tyrie says:

“In the space of a few minutes, the Governor confirmed that his remarks on interest rates at the Mansion House both reflected his personal views and commanded the unanimous support of the MPC.

“We have already had two versions of forward guidance, and several further pieces of signalling.

“MPC members should be encouraged to give their views. We will need greater clarity, in future, on whether their remarks, including those of the Governor, are made in a personal capacity or on behalf of the MPC.”

Why the Bank might not unwind QE

QE is shown in red, while the amount of money banks place with the BoE on deposit (on top of the legal minimum) is in blue.

The Bank of England balance sheet Photograph: /Louise Cooper

It shows that, as the BoE bought gilts from commercial banks with new money, most of the proceeds were then returned to the BoE on deposit. Only £100bn escaped the banking sector to stimulate the real economy.

That feels like an argument against doing QE at all! Especially as the 'stimulus effect' hasn't reached wage packets, and has instead pushed up asset prices.

But it's also an argument for not worrying too much about reversing QE, as the "cumulative balance sheet" hasn't really changed. Or at least

Louise explains:

The BofE has bought £375bn of gilts and so is owed that amount by the government. But the BofE now owes the banking system an additional £275bn. So net net, the bank's balance sheet has only expanded £100bn. The maturity has changed in that it owns longer dated gilts but owes overnight money to banks. But the BofE can probably ignore this.

This argument has the added benefit is that it is quite complex and so will be difficult to explain. So the British public may just ignore it. The Bank of England has come up with a reason to not reverse QE, not sell the £375bn of gilts back to the market. And its critics will point out that this is monetising debt. And so it becomes a complicated argument of semantics which most of the population will not bother to try and understand. Perfect politically.

Especially with one third of the national debt sitting in the Bank's electronic vaults....

Eimear Daly, head of market analysis at Monex Europe, says Mark Carney was clearly more dovish than expected, in another u-turn by the governor.

"The Bank of England’s testimony to the Treasury Select Committee left money markets reeling from yet another whipsaw in policy outlook. After suggesting that rate hikes may happen sooner than expected in his Mansion House speech, Carney shocked the market with a far more dovish performance.

Today's hearing showed clear confusion within the Bank of England over when it should start raising borrowing costs, she adds:

The testimony shows that it is the top officials in the Bank that are the doves, and the rest of the Committee who are hawks.

“Despite recognising that the UK economy has a lot more momentum than previously thought, Carney cannot shake the inconsistency of weak wage growth, which he believes proves the existence of spare capacity in the UK economy and justifies later rate rises.

It's time for traders to "take the stabilisers" off, reckons RBC Capital Markets.

They believe Mark Carney's message today is that investors must recognise that the BoE will respond to data, and follow suit.

RBC writes:

When the MPs finally got round to asking Governor Carney about the motivation behind his famous comment in the Mansion House speech that the first rate hike "could happen sooner than markets currently expect" it became clear that it wasn't because he has already decided that rates will go up before the end of 2014....

Both he and the rest of the Committee feel as though markets haven't been responsive enough to recent stronger data on the economy.

For all the critisicms of forward guidance the Governor appears to be feeling the need to remind markets that in the post-threshold guidance world, the formulation of market rate expectations should be more sensitive to volatility in the data than it has been.

12.54pm BST

Chris Williams, CEO of Wealth Horizon, isn't convinced by Mark Carney's claim that the public have embrace the forward guidance:

: “Despite its protestations, the Bank of England has significantly overestimated the level of clarity that the market and consumers have on its strategy around interest rates.

Williams also questioned whether the UK public can really be expected to focus on the "medium term", rather than fixating on when that first rate rise will come:

"The Governor has asked the country to focus on the medium rather than the short term. Yet, markets can expect volatility when rates start to climb and the average mortgage repayment could rise by hundreds of pounds a year. So, understandably, retail investors and homeowners are unlikely to focus on the medium term when even in the short term any rate rise will have a significant impact for them.

"These concerns need to be addressed. We need to ensure clarity of expectations, something that the TSC was asking for, but I'm not sure that is what the country is getting."

12.30pm BST

So, did Mark Carney deliver a hawkish appearance, or a dovish one?

Howard Archer, chief economist at IHS Global Insight, reckons the governor and colleagues were actually "pretty balanced", on the question of when rates might rise.

Mr. Carney stressed that the decision on when interest rates will start to rise will be driven by the data over the coming months and stated that he expected market expectations to move in line with the data. He indicated that his Mansion House speech when he said that interest rates “could happen sooner than markets currently expect” was aimed at correcting market belief that there was only around a 15% probability that interest rates would rise before the end of this year.

Mr. Carney observed that the recent very low earnings growth data could be a sign that there was more slack in the labour market than the MPC had previously thought but he balanced this by observing that the economy looks to have more momentum than had been expected.

12.24pm BST

Reaction to the Treasury committee hearing is flooding in.

Alastair Winter, chief economist at Daniel Stewart & Co, says that today's session shows that Mark Carney was deliberately sending a signal to the markets in his Mansion House speech (see 10.33am for details)

He tells me:

I agree, Carney knows what reactions he will get!...A showman & politician:

Winter expects that the first rate hike will come in November or December.

12.20pm BST

Breaking away from Mark Carney briefly - Turkey's central bank has just cut one of its interest rates, for the first time since dramatically hiking borrowing costs in January.

The bank cited "an improvement in global liquidity conditions" as it trimmed its one-week repo rate by 75 basis points to 8.75%.

It left the other rates unchanged - despite pressure from the Turkish government to reverse the rate hikes imposed five months.

Yannis Koutsomitis (@YanniKouts)

#Turkey's benchmark 2-yr bonds at 8.38% after rates decision, lira extends rally to 0.46% against the dollar to 2.1277 per $ ~@wsjemre

The pound fell back against the US dollar during Mark Carney's testimony, losing about 0.35 of a cent to $1.699.

Sterling weakened after Mark Carney suggested (at 9.48am) there is more spare capacity in the economy than the MPC thought, after the latest unemployment data shows weak wage growth.

Pound vs US dollar today. Photograph: Thomson Reuters

He said:

"The developments on the wage front suggest to me .... that there has been more spare capacity in the labour market than we previously had thought."

Updated at 12.11pm BST

11.41am BST

And finally, David Miles tried to play down the speculation over when interest rates might rise -- saying that the chatter about whether the first hikes come in November, or next March, is "largely noise".

And that's the end of the session - I'll pull together the key points, and reaction, now.

Mark Carney: UK interest rates will be "materially below 5%" in three years

Photograph: PA

Mark Carney has predicted that UK interest rates will still be "materially" below 5% in three year's time.

The Bank of England governor made the prediction as he defended his forward guidance on interest rates (again).

He told the Treasury Committee that the various iterations of forward guidance has helped underpin the recovery, which has been the strongest in the G7.

The priority now is to turn "a successful recovery is turned into a durable and balanced expansion", says Carney.

And looking ahead, he predicted:

If you look out to a three-year horizon my personal view is they will still be materially below historical averages, that is materially below the 5% historical average, because there are huge forces that are still operating on this economy.

And he goes on to name several forces, including:

The weakness of Europe

the repair of public balances

the "weight of debt" within British households

and the changes taking place within the UK's financial system after the great recession

As Carney puts it:

All those factors will influence the medium-term path of interest rates.

He was responding after Andrew Tyrie, committee chairman, accused the governor of some fluctuating guidance in his 11 months in office.

Carney insisted he had been consistent, and helped to deliver the recovery.

Angela Monaghan (@angelamonaghan)

Tyrie to Carney: We've had quite a lot of guidance, not all pointing in same direction.Carney to Tyrie: MPC has been consistent in approach.

Yes, one of 10 Londoners on the FPC, says Carney, playing his purdah card.

But he does then point out that the lack of supply, relative to demand, is a key dynamic in the housing market.

11.14am BST

MPC member David Miles also argues that the Bank of England might well hold onto some of the gilts it bought via QE during the crisis.

That's partly because of new rules that mean the BoE's balance sheet should be higher than before the crisis, Miles says.

Hang on, says Stuart Hosie MP. When you launched QE, you told us that it would be temporary, and reversed, so you weren't imply printing new money. Now it sounds like you've changed policy.

Is this a policy change, or a pragmatic tweaking?

Carney also cited new rules on financial stability which mean commercial banks need to hold more reserves, and thus the Bank of England does too. But if we don't unwind QE fully, it's because of reasons of financial stability, not monetary stimulus, he says.....

Updated at 11.15am BST

11.11am BST

Louise Cooper (@Louiseaileen70)

Way away from getting out of QE. Carney "rates need to be high enough to allow us to cut if needed whilst unwinding QE".

John Thurso MP also asks about the issue of unwinding the quantitative easing bond-buying programme.

He reminds Charlie Bean (or is it Sir Charlie? Bean says he doesn't care really) about a recent speech he gave, warning that there could be 'potholes' on the road to normalisation.

Does that mean that the Bank could simply keep all £375bn of gilts in its vaults forever? (having mopped up a third of the national debt with newly created money)

Bean flags up the danger that unwinding QE could potentially mean that commercial banks could become stuffed with gilts, and then forced to ditch them on the market.

11.03am BST

There's likely to be an increase in volatility as UK monetary policy returns to normal, Carney predicts.

11.00am BST

Carney: QE won't be unwound until interest rates are above 1%

Onto the issue of when the Bank might start to unwind its QE programme, under which it bought £375bn of UK gilts (government bonds). Another crucial challenge facing the BoE as the economy returns to normal.

David Ruffley MP points out that Bank recently said that the asset purchase scheme won't be reduced until interest rates have reached a level from where they could be cut.

Does that mean over 1%?

Carney declines to be too specific, but yes, his personal view is that rates would have to be higher than 1% before QE is unwound.

Incidentally -- Toby Nangle, fund manager at City firm Catalyst, has just written a fascinating blog post about the whole issue of QE.

He suggests there's an argument that the BoE should sell some long-dated government bonds before raising rates.

Does Carney agree with the Office for Budget Responsibility, which warned that 24% of Britain's 11 million mortgage holders would have to increase their income, cut their spending or refinance their loan if interest rates rise by 2.5%?

Carney cautions that he's not sure that the spread (between the rates that banks borrow and lend) will narrow as interest rates rise. And that could mean that more than 24% of mortgage-holders would be affected.

Bean declines to give a view on whether the speech was advisable - the governor is entitled to act as he sees fit

But he does hammer home the point about making the markets change their view -- the MPC was surprised that financial markets didn't appear to fully reflect the 'economic and geopolitical' uncertainties.

10.33am BST

Carney: Mansion House speech was meant to make markets adjust to the data

Jesse Norman MP suggests that market-moving news such as the Mansion House speech ought to occur in a more formal way? (ie, through the MPC minute). Did Carney expect the reaction?

Carney says that everything a G7 central bank governor does is potentially market-moving - he learned that in Canada.

So what were you trying to do at Mansion House?

We wanted the market to adjust to the data, just as we adjust to the data. We were surprised that it hadn't adjusted, Carney says.

So you were trying to tighten the markets?

A market that moves around based on the data is a healthy thing. So as the data changes, the market path of the likely future path of interest rates should change, Carney explains.

In other words - he knew exactly what he was doing.

Richard Edgar (@ITVRichard)

It was the intended consequence of your speech to change expectations about the first move on interest rates, Carney is asked: "Absolutely"

Tyrie asks Ian McCafferty if he was consulted about the Mansion house speech - after all, if did move the markets (just as the World Cup kicked off, too)

McCafferty says he was consulted, and that the speech was consistent with the latest data the MPC had examined.

How about David Miles?

Miles says the speech represented Mark Carney's views, but doesn't express any concerns

10.24am BST

Onto the Mansion House speech.

Andrew Tyrie asks whether the warning that interest rates might rise sooner than expected was the governor's view, or the Monetary Policy Committee's

It was my speech, Carney replies, therefore my views. But it was also consistent with the MPC's last meeting, when they expressed surprise that the market weren't pricing in a higher chance of a rate rise this year.

John Mann MP pushes the witnesses about wage growth - and questions whether the Bank's data is correct.

Charlie Bean says there are signs of above-inflation pay rises in parts of the economy, such as construction, but they're still isolated.

Mann then says that employers in HIS constituency of Bassetlaw, in Nottinghamshire, repot that they are agreeing pay rises of 3.6% to 3.7%.

That's much higher than the average weekly earnings data.

Bean suggests that the difference is partly because private sector firms are offering pay rises higher than in the private sector.

10.17am BST

Another point regarding rebalancing the UK economy -- David Miles cites Britain's reliance on Europe as an export market as a reason why the recovery was slow; building up our sales to the Middle East, say, will take many years.

Carney agrees that it's true, but says there are many challenges in rebalancing the economy.

And Charlie Bean agrees that the process of "creative destruction of capital" has been less rapid after the last recession because the Bank cut interest rates so low (ie, 'zombie firms have been able to keep operating)

10.08am BST

How much progress have we made towards rebalancing the UK economy, asks George Mudie?

Carney says some progress has been made -- the recovery is less dependent on consumer spending, and there are signs that business investment is on the rise.

The recovery is more balanced than before, but the job isn't completed.

But there's a sting in the tail! Tyrie says the committee wants senior people who leave the Bank of England to write a 'valedatory' note, on what they learned at the BoE, and lessons for their successors.

Bean says he'd be willing to do that, after an 'air gap' to collect his thoughts.

How long?

A year, Bean suggests.

We can live with that, says Tyrie.

9.41am BST

Treasury select committee, 24 June 2014 Photograph: /Parliament TV

9.40am BST

Andrew Tyrie starts the session by a tribute to "Sir Charlie" Bean, who is leaving the bank this summer.

You've been a top-flight public servant for the bank and the country, Tyrie says, blending loyalty and independence. Not always easy.

9.38am BST

Bank of England governor Mark Carney begins testifying to parliament

And we're off, in the Wilson Room of Portcullis House.

Mark Carney is taking his seat before the Treasury Committee, alongside deputy governor Sir Charles Bean, and MPC members David Miles and Ian McCafferty.

9.36am BST

Still waiting for the session to begin - often, MPs have a short private meeting before their guests arrive.

Some questions for Dr Carney

So...what might the MPs ask Mark Carney and colleagues? Here's a few ideas:

1) What was he trying to achieve at the Mansion House 12 days ago, when he warned that the first rate rise could come sooner than the markets expect?

2) What changed between May's inflation report, when Carney still appeared dovish, and the Mansion House speech?

3) Could he please define Forward Guidance today - under what conditions could interest rates start to rise?

4) Does the rest of the MPC still support forward guidance? (a question best directed to Charlie Bean, Ian McCafferty and David Miles too)

5) How would conditions in the UK be different if he hadn't pledged to leave interest rates unchanged until the labour market recovered, last August? Everyone loves a counterfactual, right?

9.08am BST

Just 20 minutes until the start of Mark Carney's testimony in parliament (previewed earlier).

Jeremy Cook of World First, the currency firm, reckons that the governor's recent change of tone will not be "warmly accepted" by the Treasury committee.

It stands to reason that Carney will not want to flip-flop twice in less than a fortnight in his testimony and further bullish chatter on the economy will be needed on the prospects for the UK economy.

But Carney could cite last week's sharp drop in inflation as a reason not to raise rates, Cook adds:

There is the definite risk that the Governor leans on low inflation and lower wages to try and get him out of hole that he may feel he has dug with his newly hawkish comments

9.07am BST

The IFO survey of German business confidence has just been released, and it's weaker than expected.

The index tracking the business climate fell to 109.7, compared to estimates of 110.3, and down from 110.4 last month.

World First (@World_First)

Poor IFO figure completes hat-trick of bad German data following ZEW and PMIs

“We get very strong signals from the BOE and they become meaningless a month later.”

Bloomberg's reporter Manus Cranny reckons today's session is 'incredibly important', for the credibility of forward guidance. He flags up that the minutes of the Bank's last MPC meeting were 'incredibly hawkish'; revealing that more members are prepared to vote for a rate rise.

Photograph: Bloomberg

Michael Hewson of CMC Markets says the governor will be pushed to explain his "chameleon-like" change of view:

The likelihood is that Carney will try and balance his remarks about any rate rise being data dependant, and given that inflation is falling and wage growth remains weak it is more likely that the market could well be getting ahead of itself on this one.

In any event, whatever happens today, after the events of the last few weeks, the Bank's policy of forward guidance is looking distinctly shambolic.

Updated at 8.15am BST

7.52am BST

Carney in the spotlight

Mark Carney, Governor of the Bank of England, giving his Mansion House speech earlier this month. Photograph: Peter Macdiarmid/PA

Good morning, and welcome to our rolling coverage of the financial markets, the economy, business and the eurozone.

One main event this morning -- Bank of England governor Mark Carney is appearing before the Treasury committee to answer questions on the latest Inflation Report.

And while it's not my place to give the governor any forward guidance, he can probably look forward to a testing inquisition from MPs.

They'll be demanding answers on exactly why Carney, after months of guiding down expectations of a rate rise, used his Mansion House speech two weeks ago to warn that they could actually rise sooner than expected.

...a lot of arm waving until the governor tells us when he thinks rates are going to go up or down.”

The Bank's forecasting abilities (not always its strongest suit) could also come under scrutiny, now that inflation has hit a fresh five-year low of 1.5%, further from the 2% target.

Carney will share the spotlight with deputy governor Charlie Bean, and MPC members David Miles and Ian McCafferty. Miles had been seen as the most dovish member of the committee, but even he is now talking about probably voting for a rate rise before the year is out.

RANsquawk (@RANsquawk)

BOE’s Carney, Bean, McCafferty and Miles all set for a grilling today on forward guidance by the Treasury select committee at 9.30BST